The prescription drug landscape is transforming. For decades, pharmacy benefit managers (PBMs) relied on opaque reimbursement models that left pharmacies struggling to predict their revenue and, in many cases, dispensing prescriptions at a loss. A convergence of federal enforcement actions, landmark legislation and shifting market expectations is accelerating the adoption of “cost-plus” pricing models across the pharmacy benefits industry. As cost-plus pricing becomes an increasingly central feature of the prescription drug supply chain, pharmacies need a firm understanding of what it means, why it is gaining traction, and how to position themselves strategically as these models reshape the competitive landscape.
What is Cost-Plus Pricing?
At its core, a cost-plus pricing model reimburses pharmacies based on their actual drug acquisition cost, plus a professional dispensing fee. Pharmacies may also earn additional compensation for providing clinical services. The cost-plus approach stands in stark contrast to PBMs’ traditional reimbursement methodology, which typically relies on complicated negotiated discounts from inflated Average Wholesale Price (AWP) benchmarks and Maximum Allowable Cost (MAC) lists, pricing constructs that bear little relationship to a pharmacy’s actual cost of acquiring a drug. Under traditional models, pharmacies might profit from some claims, but more often than not, they break even or lose money on the majority of prescriptions dispense.
Under a cost-plus model, the reimbursement equation is intended to be straightforward: the pharmacy is paid the verifiable cost of acquiring the drug, a transparent dispensing fee for the professional service of filling the prescription, and, where applicable, fees for non-dispensing clinical services such as patient counseling and direct patient care. Some cost-plus models may also include a defined percentage “markup” over the acquisition cost of the drug, in addition to, or in lieu of, the dispensing fee.
Importantly, most cost-plus arrangements still incorporate a “lesser of” pricing logic, meaning the pharmacy is reimbursed the lesser of the cost-plus formula, the pharmacy’s usual and customary price, or any applicable plan-specific cap. Pharmacies should carefully evaluate how this lesser-of-logic interacts with the cost-plus formula to ensure the transparency benefits of cost-plus pricing are not effectively negated. The simplicity and transparency of the cost-plus model are its greatest strengths. By tying reimbursement to actual, documented costs rather than to opaque benchmarks, cost-plus pricing is intended to improve predictability and fairness, and reduce the risk of discriminatory or preferential reimbursement practices that have historically favored PBM-affiliated pharmacies.
Why Cost-Plus Pricing is Gaining Momentum
The movement toward cost-plus pricing is not occurring in a vacuum. Rather, it reflects the culmination of years of regulatory scrutiny, legislative reform, and market pressures directed toward traditional PBM business models. Three recent federal developments, in particular, have sent a remarkably consistent message to the market: more transparency, greater auditability, and increased scrutiny of PBM compensation structures.
- The Federal Trade Commission Settlement with Express Scripts. Perhaps the most significant catalyst for the rise of cost-plus pricing is the Federal Trade Commission’s (FTC’s) landmark settlement with Express Scripts, announced on February 4, 2026. The FTC alleged that Express Scripts and other major PBMs operated a system that incentivized high list prices by factoring drugs with larger rebates, even when lower-cost alternatives were available. As a result, PBMs generated increased revenue while patients incurred higher out-of-pocket costs, and pharmacies faced unpredictable reimbursement and frequent clawbacks.
Under the settlement, Express Scripts agreed to move toward a cost-plus reimbursement model, reimbursing pharmacies based on their actual acquisition cost plus a professional dispensing fee, with additional payment for clinical services. The settlement also requires Express Scripts to eliminate spread pricing and rebate retention in its standard offering, provide detailed reporting on drug pricing, disclose payments to brokers who influence employer decisions, among other things.
Although formally binding only on Express Scripts, the settlement has immediate competitive implications. Large employers and plan sponsors are expected to ask why similar transparency and pricing models cannot be offered by other PBMs, and the FTC has effectively supplied plan sponsors with a concrete reference point for what a less conflicted PBM model can look like in practice. Indeed, other major PBMs are already responding with their own cost-based initiatives. CVS Caremark, for example, launched its “TrueCost” program, which adopts a more transparent, cost-based pricing approach. OptumRx introduced its “Cost Clarity” model, which reimburses pharmacies based on a pricing logic that approaches acquisition costs (using NADAC or WAC) plus a defined markup plus a dispensing fee, with full implementation targeted by 2028. These competitive responses suggest that cost-plus pricing is rapidly becoming the industry standard rather than an outlier approach. - The Consolidated Appropriations Act of 2026. The passage of the Consolidated Appropriations Act of 2026 (CAA 2026) further accelerates the industry’s shift toward cost-plus and transparent pricing models. CAA 2026 significantly expands the transparency obligations PBMs owe to plan sponsors, requiring semi-annual reports that detail, among other things, the amount paid by the plan per prescription for each drug, the reimbursement paid to the network pharmacy, and the difference between those two amounts (also known as reimbursement spread). The statute also requires that employee group health plans subject to ERISA receive all manufacturer rebates from PBMs and their affiliated rebate aggregators on a 100% pass-through basis.
By mandating this level of disclosure and eliminating PBMs’ ability to retain rebates, CAA 2026 effectively undermines the economic rationale for rebate-driven pricing models and creates strong incentives for PBMs and plan sponsors alike to adopt cost-plus or fee-based reimbursement structures. - The Department of Labor’s Proposed Rule. The Department of Labor’s proposed rule governing PBM disclosures complements CAA 2026 by framing PBM transparency within the ERISA fiduciary context. The proposal requires PBMs to disclose all compensation received by the PBM and its affiliates, including manufacturer rebates, reimbursement spread, and copay clawbacks. The practical effect of the proposed rule is to reposition PBM oversight as an ongoing fiduciary obligation, meaning that PBM pricing and compensation models must be explainable, defensible, and documentable. Cost-plus models are inherently well-suited to meet this standard because they are built on transparent, verifiable cost components rather than opaque formulas.
Pharmacy Considerations for Cost-Plus Models
As cost-plus pricing models become more prevalent, pharmacies must be strategic and well-informed in how they approach this transition. Several key considerations deserve attention:
- Contractual Definition of Acquisition Cost – The definition of “acquisition cost” is the foundation of any cost-plus arrangement, and ambiguities in how it is calculated can materially affect reimbursement levels. For instance, whether acquisition cost includes or excludes shipping costs, prompt-pay discounts, or volume-based incentives from wholesalers can significantly alter the effective reimbursement a pharmacy receives. Pharmacies should also be aware that PBMs may use various proxies for actual acquisition cost, including the National Average Drug Acquisition Cost (NADAC), Wholesale Acquisition Cost (WAC), or Predictive Acquisition Cost (PAC). NADAC is a CMS-published benchmark based on surveyed pharmacy invoice costs and is generally considered a reliable proxy for actual acquisition cost. WAC represents the manufacturer’s list price to wholesalers before discounts and is typically higher than actual acquisition cost. PAC is a newer, algorithmically derived estimate of acquisition cost that some PBMs have begun to adopt. Each of these benchmarks carries different implications for reimbursement, and pharmacies should carefully evaluate which metric is being used, how it is calculated, and whether it accurately reflects the pharmacy’s true cost of acquiring the drug. Critically, pharmacies should avoid broad definitions that are open to manipulation, such as “estimated average acquisition cost” or “PBM-determined acquisition cost,” as these give PBMs unilateral discretion to set reimbursement levels. Pharmacies should negotiate clear, favorable definitions and ensure that the methodology for verifying acquisition cost is fair, transparent, and workable.
- Professional Dispensing Fees – The professional dispensing fee is a critical component of any cost-plus arrangement. For years, pharmacy owners have expressed concerns that PBM reimbursement methodologies fail to cover the true costs of dispensing, including pharmacist labor, overhead, regulatory compliance costs, and technology infrastructure. Pharmacies should advocate for dispensing fees that reflect the actual cost of providing professional services and should resist below-cost fee schedules that undermine the financial viability of the cost-plus model. Pharmacies should also evaluate how dispensing fees are structured for extended days’ supply prescriptions (e.g., 90-day fills) compared to standard 30-day fills, as a flat dispensing fee applied to a 90-day supply effectively reduces the per-unit compensation for the pharmacy’s professional services. Additionally, pharmacies offering specialized services (such as specialty pharmacies, home infusion providers, and long-term care pharmacies) should seek enhanced dispensing fees that account for the unique clinical, logistical, and compliance demands of their operations.
- Reasonable Profit Considerations – A sustainable cost-plus model must account for more than just cost recovery; it must also provide pharmacies with a reasonable profit margin sufficient to fuel continued investment in pharmacy operations, attract and retain qualified staff, and maintain the infrastructure necessary to serve patients. The structure through which profit is built into a cost-plus arrangement matters significantly. If profit is embedded solely within the professional dispensing fee, pharmacies will need to achieve high prescription volumes to remain financially viable. Additionally, there remains the risk of the “race to the bottom” where pharmacies continuously agree to lower and lower dispensing fees in order to gain access to specific networks and inevitably erode any viable profit. Alternatively, incorporating profit through a defined percentage mark up over acquisition cost may better align with pharmacy margins with the overall inventory risks pharmacies bear, including costs of carrying inventory, managing drug shortages, and absorbing losses from expired or unsaleable product. However, a markup-based approach may inadvertently favor higher-cost products, creating its own set of incentive misalignments. Pharmacies should carefully model the financial impact of different profit structures before agreeing to cost-plus terms and should advocate for arrangements that provide sustainable, predictable margins regardless of product mix or prescription volume.
- Opportunities for Additional Compensation – Pharmacies should pay close attention to opportunities for additional compensation for clinical and non-dispensing services. The FTC settlement with Express Scripts acknowledges the growing role pharmacists play in patient care by recognizing and compensating non-dispensing services such as patient counseling. Pharmacies that document and demonstrate the value of their clinical services will be better positioned to negotiate favorable compensation for those services under cost-plus arrangements. Pharmacies should also understand how performance metrics and network performance programs factor into their total compensation, and should seek transparency regarding the criteria and methodology used to calculate any performance-based payments.
- Anticipate Revisions to Existing Agreements – Pharmacies should anticipate new contract terms, revised reimbursement schedules, and increased transparency regarding reimbursement calculations as these reforms are implemented. It will be critical for pharmacies to ensure that new agreements accurately and fairly compensate them for their provision of services. Equally important, pharmacies must guard against rate degradation over time. Labor costs, rent, technology expenses, and regulatory compliance costs will inevitably increase, and unless a pharmacy negotiates dispensing fees that are contractually tied to the Consumer Price Index (CPI) or another recognized inflation benchmark, the real value of those fees will erode with each passing year. Pharmacies should seek contractual escalators that automatically adjust dispensing fees to reflect rising costs, and should resist multi-year agreements with static fee schedules that lock in today’s rates without accounting for future cost increases. In addition, pharmacies should include protections addressing drug availability issues, ensuring that reimbursement is not adversely affected by supply disruptions, manufacturer shortages, or other circumstances beyond the pharmacy’s control.
How Pharmacies Can Establish Cost-Plus Arrangements
For independent retail pharmacies, the shift toward cost-plus pricing represents both a significant opportunity and a challenge. Independent pharmacies should begin by reviewing their existing PBM contracts to identify provisions that are inconsistent with cost-plus principles, including spread pricing arrangements, clawback provisions, and reimbursement terms tied to opaque benchmarks. Larger chain pharmacies may have greater bargaining power in PBM negotiations and should also proactively evaluate their reimbursement structures. Armed with the new transparency requirements under CAA 2026 and the precedent set by the FTC settlement, both independent and chain pharmacies now have significantly more leverage to demand cost-plus or fee-based reimbursement models.
How Frier Levitt Can Help
The shift toward cost-plus pricing represents a unique opportunity for pharmacies to secure fairer, more transparent reimbursement. Realizing that opportunity requires careful contract negotiation, regulatory awareness, and strategic planning. Frier Levitt has decades of experience counseling pharmacies nationwide on PBM contracting, reimbursement disputes, and regulatory compliance. Whether you are an independent pharmacy seeking to transition to a cost-plus arrangement for the first time or a larger chain evaluating your current reimbursement structure in light of industry-wide reform, our attorneys are ready to assist. Contact Frier Levitt today to position your pharmacy for success in the evolving pharmacy benefits landscape.
